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Tips for Working With Professional Construction Accounting Firms

StrategyDriven Managing Your Finances Article | Tips for Working With Professional Construction Accounting Firms

Construction companies need reliable financial reporting to track expenses, recognize revenue, and manage cash flow. A general bookkeeper or inexperienced CPA must address this.

The right accounting firm will understand the unique challenges of construction accounting. They will use their industry knowledge to help you optimize your finances and prepare for growth.

Experience

The best construction accounting firms have vast experience managing these clients’ unique financial management needs. Developing deep domain expertise in the construction industry allows them to offer valuable value-added services like estimating and budgeting, project cost tracking, progress billing, and software implementation. Additionally, a firm that works closely with many construction firms understands specialized rules and regulations regarding job-costing methods, revenue recognition, and tax laws.

Professionals working with construction businesses have also mastered accrual accounting, which differs from cash accounting in that it records income when the company earns it rather than when it receives payment for the work. This helps construction companies keep track of their finances and make informed decisions about how to bid on projects, manage profit margins, and bill customers accurately.

An excellent CPA for construction firms can also help their clients prepare and file taxes, reducing their risk of audits, penalties, and fines. They can also advise on the latest changes to reporting standards and tax laws that may impact their clients’ business operations.

Expertise

It is essential to find a firm that understands the unique accounting requirements of construction firms. Construction bookkeeping is much more complex than traditional general accounting. It requires a specific approach incorporating software programs that allow workers in the field, business owners, and accountants to submit data on costing through a platform.

Additionally, construction accounting is project-centric. A construction firm needs a way to manage, categorize, and report transactions for each job to prepare taxes and ensure that service pricing is accurate. This is known as job costing.

Expertise is often considered a given talent, like Tiger Woods or Michael Jordan in sports, Albert Einstein in science, Wolfgang Amadeus Mozart in music, Bill Gates or Warren Buffett in business. However, research shows that expertise is not a given but a skill built through practice and experience. According to Hatano and Inagaki, experts develop their knowledge by seeking new problems, requiring them to apply different procedures and strategies. In addition, they seek out feedback on their work.

Fees

Accurate accounting is essential for bidding on projects, determining profitable ones, and billing clients accurately in the construction business. It can also help ensure compliance with regulatory requirements and industry best practices. A reputable CPA firm with intimate market knowledge can advise contractors on spending decisions, such as buying or leasing equipment.

Many companies offer a wide range of services beyond basic accounting. These might include budgeting and forecasting, cash flow management, risk management consulting, software implementation for job costing and project tracking, and dispute resolution with subcontractors or suppliers.

Specialized accounting for the construction industry can address unique challenges arising from time-consuming tasks like work-in-progress reports, calculating overhead, and using technical tax elections. A seasoned accounting professional can also advise on strategies to minimize tax liability and maximize deductions, including deducting mileage for travel to and from job sites. This is important because a company’s ability to take advantage of tax deductions can significantly impact its bottom line.

Reputation

Reputation is more than “what you know” or “what others think.” It includes all the aspects of a business that are not readily visible. This consists of the ability to work effectively with clients, partners, and other stakeholders in the industry. The construction accounting firm you choose should be able to build and maintain an appropriate reputation in your local market.

Having a CPA who is well-versed in the unique complexities of construction accounting and is actively engaged with a wide range of clients is essential for addressing issues that arise. They can help ensure your company is compliant, avoids costly practices, and maximizes its financial processes and growth potential.

For example, the right firm will have expertise in state and local taxes (SALT) and how they affect your costs. They will also be aware of new accounting pronouncements and their impact on the way you recognize revenue and lease obligations. They can help you develop cost allocation strategies consistent with your business model and optimize tax reporting. They can also help you implement a software program to make job costing much more accessible and ensure the information is available to your employees and accounting partners.

Personality

The right personality is essential to the success of a CPA firm. While most firms can answer the basic questions, such as “How often do you meet?” and “What are your fees?”, the best ones can distinguish themselves by displaying an extroverted nature, superior communication skills, comfort with public speaking, and other traits. Moreover, it’s important to note that every business is different and requires unique daily operations. For example, contractors must stagger their recognition of income to avoid pushing themselves into a higher tax bracket in a good year. An accounting firm can help in achieving this by providing strategic advice.